The Afterpay Touch Group Ltd (ASX: APT) share price has well and truly collapsed. APT shares were at an all-time high of $37.42 just 3 weeks ago. But today, you can pick up shares of this buy-now, pay-later (BNPL) giant for just $26.16 – a drop of nearly 30% in under a month.
But is Afterpay a buy at these levels? It does look like a compelling discount on paper, that’s for sure.
What do Afterpay’s numbers look like?
It always shocks me how sentiment surrounding a company can turn just by the movements of its share price. In my view, nothing about Afterpay’s business model has changed over the last month – so why is the market suddenly valuing this business at two-thirds of what it was?
The thing to keep in mind with a company like Afterpay is that it is very difficult to value the future cash flows of a company that has yet to even produce cash flow.
That’s right – Afterpay doesn’t actually turn a profit. In fact, in the June quarter Afterpay reported $61.93 million in revenue, but an operating income loss of -$6.57 million, leading to diluted earnings per share of negative 4 cents. Considering this is a $6.7 billion company, these numbers leave a lot of shaky ground for the valuation to cover.
Still, Afterpay is without a doubt still a growth machine. Millennials can’t seem to get enough of its disruptive payments platform, and its June quarter revenue was up by 94%, year-on-year.
Is Afterpay a buy today?
Despite these numbers, I don’t feel like Afterpay’s current size is worth its future earnings potential. October’s sentiment shift was triggered by a broker note from UBS saying that they think Afterpay is grossly overvalued – giving it a sell rating and a 12-month price target of $17.25.
I do think Afterpay is a disrupter and will continue to shake things up in the BNPL space, I just think there are better opportunities out there today.
The post Is it finally go time for Afterpay shares? appeared first on Motley Fool Australia.
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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019